Registration of Trusts is Based on Charitable Objects, Not Activities: ITAT
Fact and issue of the case
This appeal is filed by the assessee against the order passed by the CIT(E), Raipur, dated 09.09.2016, for the assessment year 2016-2017, on the following ground :-
That the learned Commissioner of Income Tax (Exemption) erred in rejecting the application for registration of the Appellant i.e., Trust U/S 12AA of the Income Tax Act,1961. Prayed that the Appellant is entitled for registration U/S 12AA rws 11 & 12 of the Income Tax Act, 1961 and be registered.
That the learned Commissioner of Income Tax (Exemption) also erred in observing that the Appellant was engaged in the activities similar to “any activity in the nature of trade, commerce or business ”. Prayed that the Appellant is not engaged in any activity in the nature of trade, commerce or business. Prayed to grant registration U/S 12AA rws 11 & 12 of the Income Tax Act, 1961.
Brief facts of the case are that the assessee has applied for registration u/s.12AA of the Act in Form No.10A, however, the CIT(E) rejected the application of the assessee stating that the assessee is not engaged in any charitable activities, the assessee is indeed engaged in advancement of any other object of general public utility, which are far exceeds the allowed limit of 20%.
Against rejection order of the CIT(E), the assessee is in appeal before the Tribunal.
AR before us submitted that the assessee is registered under Public Trust Act by SDO, Kharasia on 29.12.1978, copy of order furnished in assessee’s Paper Book. This trust was formed by the prominent citizens of Kharasia, Shri Lakhiram Agarwal and Shri Niranjan Agarwal. The assessee trust was created for charitable objects like Renovation, repairs, addition, alteration and construction of immovable property vested in the trust for the benefit and facilities of general public utilities without any difference in cast and creed, give grants and aid for promotion and support of Libraries, Reading Rooms and other institutions for diffusion of knowledge, relief to poor, education and protection to widows and orphans and other needy people, grant aid for marriage expenses to poor and needy girls without any discrimination of cast and creed, supply of drinking water. Ld AR further submitted that the application of the assessee trust for registration under section 12AA of the Income Tax Act was rejected by the Ld CIT(E) on the basis that the certain observations, note in para 2,3,4 & 5 of the order. In conclusion, the sole basis for ITA No.334/RPR/2016 rejection of the application u/s 12AA by the Ld CIT(E) that the activities of the trust are in the nature of advancement of any other object of general public utility shall not be a charitable purpose, the same involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or consideration, irrespective of the nature of use or application, or retention of income from such activity. It was the Ld AR’s submission that trust was formed for ‘No profit motive’. The activity of the trust in running a dharmshala charging a nominal room charge as compared to any other hotel, the same should not be treated as an activity in the nature of trade or commerce. Moreover, it was the contention of the assessee that while granting the registration u/s 12A of the IT Act, activities of the trust should not have been looked into, instead the objects of the trust should have been the basis that whether the same are genuinely charitable in nature or not?, on this aspect Ld AR of the assessee relied on the judgment in the case of Ananda Social & Educational Trust V. CIT, reported in  426 ITR 340 (SC)[19-02-2020], wherein Hon’ble apex court has held as under:-
Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term ‘activities’ in the provision includes ‘proposed activities’. That is to say, a Commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA of the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust.
Ld AR further submitted that the major income of the trust was from interest on FDR, the amount of interest for the year under consideration i.e. AY 2016-17 was Rs. 5.98 Lac out of total surplus of Rs. 13.13 Lac, thus, the finding of Ld CIT(E) that the trust has high surplus from its activities was not based on correct appreciation of facts. Regarding observation of the Ld CIT(E) that there is no dissolution clause in the trust deed the assessee had submitted an undertaking dated 26.08.2016 before the Ld CIT(E) that “in the event of dissolution or winding up of the Trust, “Shri Agrasen Jan Kalyan Trust”, the assets remaining as on the date of dissolution shall under no circumstances be distributed among the trustees but the same shall be transferred to another charitable religious trust, society, association or institution whose objects & faiths are similar to those of the trust.” but the same was not considered by Ld CIT(E).
Ld AR further drew our attention to page 69 of the paper book furbished therein Section 2 of the Income Tax Act 1961, which is extracted as under:- Section – 2. Income-tax Act, 1961-2021
In this Act, unless the context otherwise requires, — (13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; (15) “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless —
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;
In view of the above definition of business and charitable purpose, it is the plea of the Ld AR that activity of running a Dharmashala for public at large can not be treated as an activity in the nature of trade, commerce or business, specially when the objects of trust are for No profit motive.
It was the further submission by Ld AR that the assessee trust has filed another application seeking registration u/s 12AA on 06.10.2020, on the same facts of the assessee trust, the same was accepted by the department and granted 12AA on 25.03.2021 vide order ITBA/EXM/S/12AA/2020-21/1031751676(1), copy of the same is furnished before us. Therefore, it was the contention of the Ld AR that department cannot take 2 stands on the same issue, accordingly, the order of rejection Ld CIT(E) towards the application made on 21.03.2016 by the assessee trust was under mistaken belief and deserves to be quashed, consequently, the assessee should be granted the registration u/s 12AA.
CIT-DR, on other hand, relied on the order of the CIT(E). Refuting the contention of the assessee that an undertaking for dissolution was filed by the assessee is not emanated from the order of Ld CIT(E) since there is no mention about such a submission by the assessee. Ld CIT-DR submitted that the Ld CIT(E) has rightly rejected the application of the assessee after verifying all the relevant evidence available with him, thus deserves to be upheld.
Observation of the court
We have heard the rival contentions, perused the material available on records and case laws relied upon. In view of the aforesaid decision in the case of Ananda (supra), since the actual activities of the trust cannot be the deciding factor while granting the registration u/s 12A but the object of the trust should have been looked into, the activities have to be looked into by the Assessing Officer at the time of assessment proceedings. It is also a fact that the trust was formed with charitable objects eligible for approval u/s.12AA of the Act, which is substantiated by the department itself by granting registration u/s 12AA on 25.03.2021 vide order ITBA/EXM/S/12AA/2020-21/1031751676(1). In such circumstances, respectfully following the judgment in the case of Ananada (Supra), we are of the considered opinion that the rejection of application for registration u/s 12AA of the Act by Ld CIT(E) was an erroneous application of law, thus, cannot sustain, accordingly we quash the same and direct to grant registration to the assessee as per law.
In the result, the appeal of assessee allowed.
Order pronounced in the open court on 04/07/ 2023.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee